Wincanton delivers strong results, looks to e-commerce and construction for growth

Wincanton’s preliminary results for the financial year ended March 31 were solid, mainly due to rising earnings and cash flows. With its restructuring story now complete, the British contract logistics provider is ready to invest to chase organic growth domestically.

The company reported revenues of £1,118m for the year ended March 31, 2017, a decline of 2.6% year-on-year. On a like-for-like basis (excluding the results of the disposed Wincanton Records Management business), revenues were down by just 1.3%. Wincanton attributed the decline primarily to the exit from loss-making Pullman home shopping contracts.

Underlying EBITDA was £64m, down by 2.3%, though on a like-for-like basis, earnings improved by 2.9%. More impressively, underlying profit before tax and earnings per share improved by 17.6% and 15.9% respectively. Profitability improved thanks to “a strong operating performance, the improvement in Pullman and end of contract settlements”

While both adjusted operating income and EBITDA rose, the biggest highlights were represented by falling debts and surging cash flows, with free cash flow coming in at £39.8m despite rising capital investment, given net capex of £18.7m versus £6m one year earlier. As a result of a much-improved performance at the operational level and a more balanced capital structure, the group now operates comfortably within its banking covenants and has the resources to invest in organic growth measures.

Annual net capital expenditures were driven by investment to support new business growth “including £10.9m for specialist vehicles and £2.4m on the group’s information systems infrastructure”.

Underlying earnings per share rose almost 16% to 27.7p on a like-for-like basis, while dividends per share are expected to rise 65.4% from 5.5p to 9.1p this year following the payment of a proposed final dividend of 6p, which would imply a 3.1% yield based on its latest share price. The payout is about 32%.

By business segment, the Retail & Consumer division reported revenue growth of 4.0% to £649m. Underlying operating profit increased by 2.4% to £26m, with margin holding constant at 4.0%. 87% of revenues were generated through open book contracts, down from 90% a year ago. Digging down further, retail general merchandise revenues increased by 13.4% to £316m, thanks to strong volume growth with Home & DIY customers, though this was partially offset by falling revenues in retail grocery (down 2.6% to £229m) and consumer products (down 5.7% to £105m), on account of contract cessations. Wincanton highlighted contract renewals with customers such as Co-op (food distribution) and Sainsbury’s (warehousing and distribution) as particularly important, while new business wins included a five-year contract with wilko (transport operations), a three-year deal with Coca-Cola (warehouse management), a four-year deal with IKEA (operational development and support for two new distribution centres) and a five-year deal with Majestic Wine (to establish and operate a national e-commerce fulfilment centre). Wincanton now generates over £250m in revenues from multi-channel retail customers. Losses included the cessation of its Morrisons convenience store contract, a lost contract with Nestlé (both announced last year), as well as a Tesco contract from July 2017.

In Wincanton’s other division, Industrial & Transport, revenues reached £469m, a decrease of 7.7%. Conversely, underlying operating profit improved by 11.9% to £26m, yielding a margin of 5.6%, up by 1.0 percentage points. Profitability improved thanks to “the improvement in performance of the Pullman business together with non-recurring items from contract cessations such as property-related credits.” In its sub-segments, Transport services revenues fell by 11.8% to £207m, mainly due to the end of closed book Pullman home shopping contracts in the second half of 2016 and volume pressure in container transport operations. Construction revenues contracted by 3.0% to £134m, mainly thanks to a customer insourcing their logistics operation, while its Other segment saw sales fall by 5.5% to £127m primarily due to the end of a defence contract, which was partially offset by its EnergyLink business and the start-up of its ready-mix concrete offering.

Adrian Colman, Wincanton’s Chief Executive Officer, commented: “Wincanton has delivered a strong set of financial results, supported by a good stream of contract renewals and new business wins in the year. The business is well positioned to invest and continue to grow in attractive markets such as eCommerce and construction.”

Source: Transport Intelligence, May 18, 2017

Author: Alessandro Pasetti